Hong Kong Government Withdraws Site at Auction After No Bidding

By Kelvin Wong -
Sep 29, 2010

Hong Kong sold a parcel of land
near the China border for a more-than-estimated HK$459 million
($59 million), while developers shunned a more centrally located
property with views of a cemetery at an auction yesterday.

Sun Hung Kai Properties Ltd., the city’s biggest developer,
bought the Fan Ling district site in the New Territories for
more than the HK$370 million median estimate of five analysts in
a Bloomberg News survey. The Chai Wan district site on Hong Kong
Island was unsold at a starting price of HK$530 million.

The location of Fan Ling, half an hour by train from the
Chinese city of Shenzhen, lured developers banking on Chinese
nationals to keep propping up property prices that have surged
46 percent in the past year to be on par with the previous peak
in 1997. The government has increased sales of land and lifted
down payments on some properties to curb escalating home values.

“It’ll be very difficult for developers to turn this into
a high-profit-margin luxury project,” Buggle Lau, chief analyst
at Midland Holdings Ltd., Hong Kong’s biggest publicly traded
property agency, said about the Chai Wan site. “I don’t think
this is an indication that the government has set the starting
bid too high or that developers are pessimistic, otherwise they
wouldn’t have paid the higher-than-estimated price for the Fan
Ling site.”

It was the seventh government land auction of the current
financial year. The two sites were among three the government
said it would sell as part of measures announced Aug. 13 to rein
in home prices, including increasing land supply.

Financial Secretary John Tsang said today the government
will continue to increase the supply of land through public
auctions.

‘Too Small’

The Fan Ling site fetched HK$2,917 per square foot, based
upon the auction price and the buildable area of 157,345 square
feet. The two sites may be developed into mass residential units,
James Cheung, a director at the surveyor arm of Centaline
Property Agency Ltd., said before the auction.

Hong Kong’s government defines luxury apartments as those
with an area of more than 1,000 square feet or valued at HK$10
million or more.

The Chai Wan site, with 155,346 square feet of buildable
area, was estimated to sell for a median HK$700 million.

“The plot size is too small,” Chu Ip Pui, an executive
director at Kerry Property Management Services Ltd., a unit of
Kerry Properties Ltd., said after the auction. The withdrawal
“doesn’t give much indication of the direction of the market”
and “doesn’t mean developers are pessimistic.”

Kerry, controlled by the family of Malaysian tycoon Robert Kuok, on Aug. 31 paid HK$1.29 billion for a 77,469-square-foot
plot in the Kowloon Tong district. The per-square-foot price of
HK$16,587 is a record for the Kowloon Peninsula.

Feng Shui

According to the Chinese geomantic practice of feng shui, a
cemetery may bring bad fortune to those living nearby. Sites are
chosen and buildings are configured in harmony with spiritual
energy under feng shui, which means “wind-water.”

“It’s taboo for the Chinese, especially for those from
mainland China,” said Yu Kam-hung, senior managing director at
CB Richard Ellis Group Inc., the world’s largest publicly traded
commercial property broker. “They will not buy those apartments
even though you sell at a huge discount. As there is no demand,
the developers are not interested in that plot at all.”

Unusual, Rare

The government last withdrew land at a public auction in
1994 when a site in Yuen Long in the New Territories failed to
sell. In 1998, the government canceled a land auction before it
started amid speculation developers would boycott it after
property prices tumbled by about 50 percent in less than a year.

The withdrawal of the Chai Wan plot is “unusual and rarely
occurred,” G.M. Ross, the auctioneer and also deputy director
at the Lands Department, told reporters after the auction. The
Fan Ling plot sale shows “strong interest” in the market, Ross
said.

Most government land sales in recent years, including the
last auction, have been triggered by developers who promised to
pay minimum amounts for sites on a list of available lots under
the so-called land application system. Regular government land
auctions have been partially resumed this year after they were
halted in 2004 to support falling home prices.

Hong Kong’s government is closely monitoring the property
market and may introduce further measures to contain prices if
they continue to escalate, a Ming Pao report on Sept. 1 quoted
Financial Secretary John Tsang as saying.

Luxury Prices

Hong Kong home prices -- especially of luxury properties --
have been pushed up by record low mortgage rates and an influx
of mainland Chinese. An estimated 20 percent of buyers of new
apartments in Hong Kong are from mainland China, according to
Centaline, the city’s biggest privately held real estate agent.

Cheung Kong (Holdings) Ltd., Hong Kong’s second-biggest
developer controlled by the city’s richest man, Li Ka-shing,
paid more than estimated for two building sites on the Kowloon
Peninsula, four days after the government lifted down payments
on some properties Aug. 13.